Chinese commodity futures are staging another mind-boggling rally

HBO Even by their usual volatile standards, Chinese commodity futures have been posting some mind-boggling moves higher in Tuesday's Asian trading session.

Here's the scoreboard at the mid-session break:

SHFE Copper¥46,160 , 0.87%

SHFE Aluminium¥12,820 , 0.79%

SHFE Zinc¥22,385 , 4.33%

SHFE Nickel¥86,800 , 1.13%

SHFE Rebar¥3,123 , 5.51%

DCE Iron Ore¥589.00 , 7.09%

DCE Coking Coal¥1,221.50 , 3.87%

DCE Coke¥1,610.00 , 4.01%

The term "bonkers", comes to mind, particularly the move seen in bulks and steel futures.

Iron ore, in particular, is having a whale of a session, surging by 7.07% to 589 yuan, the highest level seen since mid-December.

Vivek Dhar, a mining and energy commodities analyst at the Commonwealth Bank, said prices had been supported on demand hopes after environmental restrictions on steel production in northern China were partially lifted earlier in the week.

He also said that an announcement of further steel capacity cuts in the Chinese province of Hebei — a major steel producing region — may have also contributed to recent gains.

"While smog concerns still threaten to lower steel output, a drive to cut outdated steel capacity is also pressuring production lower. The Chinese province of Hebei announced that it will cut 32 million tonnes of steel capacity this year," he said.

While that may explain the resilience in rebar futures seen on Tuesday, as Dhar noted late last year, reduced steel output would usually see demand for the raw materials required to make it — including iron ore — fall as a consequence.

That doesn't seem to be a consideration for traders right now, let alone the fact that Chinese iron ore port stockpiles currently sit near the highest levels seen in over two years.

As they have done for a while now, where Chinese steel prices move, bulk commodity futures continue to follow.